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A LOS ANGELES TIMES SPECIAL REPORT: The World Economy
/ Are Free Markets Failing?

In March Toward Capitalism, China Has Avoided Russia's Path

Asia: Unlike its onetime idol, Beijing has used a gradual approach to developing a market-oriented economy.

September 16, 1998|HENRY CHU | TIMES STAFF WRITER

BEIJING — If the Soviet Union always seemed like the terrifying embodiment of Big Brother to the West, then for years it was something of a big brother to China toward the south.

Inspired by the same Marxist-Leninist ideals that first took root in Russia, Beijing alternately held up Moscow as its role model and, in times of disillusionment, its nemesis.

But since the Soviet Union's collapse, China has come to regard Russia as one thing only: its worst nightmare--a country with a political system in disarray; a society in sometimes violent flux; and, now, an economy in free fall.

In attempting to remake itself from a Communist behemoth into a capitalist beacon, China has studiously tried to avoid the path of its onetime idol, preferring a more gradual approach to change. Over the last 20 years, the result has been shaky but mostly upward progress: steady economic growth, an emerging middle class, a new breed of entrepreneurs.

As world leaders and economists reassess the wisdom of free markets amid today's global turmoil, the China model--from the perspective of Russia's collapse and the pain in lesser Asian countries that wholeheartedly embraced capitalism--looks wise enough.

Yet even as Beijing silently congratulates itself on the wisdom of its go-slow approach, analysts say that historical conditions here have been nearly as big a contributor to China's improvement as current policy.

And as in Russia, major domestic reforms--especially China's latest efforts to shed its money-losing state enterprises and streamline its bloated bureaucracy--have brought about a whole new set of problems, making the final outcome of one of the most ambitious economic transitions in history far from certain.

"It is too soon to say whether China's reforms will succeed," Nicholas Lardy, an economist with the Brookings Institution in Washington, wrote recently.

Like Russia, China has struggled to redesign a planned economy into a market-oriented one. But even though both were Communist in name, the two countries launched their modernization drives at very different stages in their development.

"The Communist revolution in the former Soviet Union was over 70 years old; the Communist revolution in China was 30," said Harry Harding, a Sinologist at George Washington University. "The former Soviet Union was more industrialized; China was still an agricultural, rural society."

China embarked on its transformation when Deng Xiaoping, the nation's late "paramount leader," officially ended Beijing's isolation in 1978 with a series of measures designed to open up and liberalize the world's most populous country.

The enormous rural communes set up by Mao Tse-tung were dismantled. Peasant farmers were permitted to sell food on the private market. Two years later, the doors to foreign investment were thrown open in specially designated zones along the southern coast.

Setting the Stage

Radical Maoism was dead, discredited after the 1966-76 Cultural Revolution, one of China's darkest periods, during which hundreds of thousands of citizens were killed.

Ironically, however, many scholars now argue that some of Mao's wrongheaded policies actually fostered the political climate and infrastructure necessary for the success of China's long march toward capitalism--or, in Deng's wordplay, "socialism with Chinese characteristics." Fanaticism was replaced by pragmatism and a thirst for a new national direction.

"The Cultural Revolution deinstitutionalized the political system and de-legitimized the Communist Party in ways that made reform both necessary and more possible," Harding said.

Under Mao, much of China's economic decision-making and planning had already devolved to local authorities. After Deng's reforms began, local officials used their knowledge and the fledgling industrial development across China to push for rapid industrialization of the countryside through a combination of tax breaks and enterprising schemes.

Labor was cheap--and plentiful. Three of every four Chinese toiled in the fields and could be redirected into industrial jobs and big, capital-intensive projects. In the Soviet Union, by contrast, industrialization was largely complete when the Soviet empire collapsed, leaving 75% of workers scrambling for hard-to-find jobs in new sectors of the economy.

Chinese cities such as Shenzhen, the first of the special economic zones, mushroomed with activity.

Shiny new skyscrapers now rise from a robust manufacturing base. Millions of Barbie dolls roll off assembly lines into the eager hands of children worldwide. The population of Shenzhen, a onetime fishing village with 30,000 inhabitants across from the Hong Kong border, skyrocketed a hundredfold to 3 million.

Traders work the Shenzhen stock market. This year, foreign investment through July totaled an impressive $1.6 billion.

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